No Match Found
The role of the board in an activist environment is an important one. Directors can help ensure the company anticipates which activists might target the company, and which issues they might raise. By being familiar with activism trends, they can encourage management to proactively address common issues that are attracting attention. In many cases, these issues deserve careful attention and should be reflected in company strategy.
The board also plays a key role in shareholder engagement, and in responding to activist requests and demands. What do boards of directors need to know to navigate this environment? What can they learn from shareholders, and how can they leverage the benefits and insights activists can provide?
An asset manager overseeing trillions of dollars in securities pledges to vote against the boards of companies that fall short on ESG matters. A hedge fund a fraction of that size threatens a proxy fight at a company it feels has too much cash on the balance sheet. Both fall under the umbrella of shareholder activism: seeking change because they think management isn’t maximizing their targets’ potential. But while they may share an ultimate goal, their tactics can differ greatly.
Some shareholders turn to activism because they feel it’s an effective way to increase the value of the companies whose stock they own. Others do so to address governance practices they believe are hurting long-term value. Or they take issue with the company’s products or business practices. Activism can take many forms. But the goal is the same: to motivate management and boards to make changes in the way their companies are run.
Every shareholder activist has a unique agenda. But history shows that companies that attract activist engagement tend to have some issues in common. Poor performance in the stock market, weak earnings compared to peers, governance missteps, and lack of attention to ESG matters can all trigger shareholder activism.
Directors have a key role to play in being prepared. They can anticipate which activists may engage with the company, the issues they may raise, and how other shareholders might respond. They can push management to address issues that may attract activist attention. Not only can these actions help ward off an activist, but they may also help improve the company’s performance and its relationship with key stakeholders.
When an activist comes calling, the company response is critical. An ineffective response may make things worse by giving the impression that the company’s management and board are not attuned to shareholder concerns. While the activist’s scrutiny may be unwelcome, that doesn’t mean their concerns are without merit. An encounter with a shareholder activist can make the company stronger in the long run—if it’s handled effectively.